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Snowflake (SNOW) has been one of the most requested companies by our community. They recently reported Q4 FY23 (ending January 2023), so I got you covered!

In just a few years, Snowflake has become one of the world’s fastest-growing software companies. Founded by a team of data warehousing experts in 2012, Snowflake’s cloud-based platform has revolutionized how organizations store, process, and analyze massive amounts of data in real-time.

But what sets the company apart in the tech industry?

Snowflake was purpose-built for the cloud with a unique architecture to allow for seamless, scalable, and secure data storage, processing, and analytics. It has eliminated many of the common pain points associated with traditional data warehousing solutions by offering a pay-as-you-go model that allows customers to scale their usage up or down as needed.

Why should you care about Snowflake?

It was the largest IPO ever for a US software company, raising $3.4 billion at a $33 billion valuation in 2020. On its first day, Snowflake reached a market cap of over $60 billion. 👀 28 months and a bear market later, the company is valued at about $44 billion.
Snowflake is expected to be the fastest software company to reach $10 billion in revenue (a target set for FY29).
By leveraging cutting-edge technology and customer-centric business practices, Snowflake has positioned itself as a leader in cloud-based data warehousing and analytics.
Heck, even Warren Buffett is a shareholder. SNOW is a small position in Berkshire Hathaway’s portfolio.

Today, we’ll cover the following:

Snowflake Q4 FY23.
Recent business highlights.
Key quotes from the earnings call.
What to watch looking forward.

In 2019, two retired ServiceNow executives—Frank Slootman (former CEO) and Mike Scarpelli (former CFO)—joined Snowflake. These two seasoned executives bring tremendous experience to the leadership team.

Snowflake’s French co-founders—Thierry Cruanes and Benoit Dageville—worked as data architects at Oracle. And they are still involved in the C-suite today.

Before we start, let’s define some terms to put Snowflake on the map:

SaaS (Software-as-a-Service): Made for the end-users. Software deployed and managed via third-party cloud software services.
PaaS (Platform-as-a-Service): Made for software developers. Cloud-based platform services for developers to build custom business apps.
IaaS (Infrastructure-as-a-Service): Made for network architects and IT administrators. Highly scalable and automated compute resources with cloud storage and networking.

The first thing you should know about Snowflake is that it operates as a Data PaaS or Data Warehouse as-a-Service (DWaaS).

Snowflake is cloud agnostic. It partners with leading IaaS data service providers or “hyperscalers” (Amazon Web Services, Microsoft Azure, Google Cloud Platform) and delivers additional features. While it relies on these giant cloud providers, Snowflake also competes with several features they offer. The company defines its ecosystem as Data Cloud. It covers all data-related functions under one roof (engineering, applications, sharing, science, storage).

In addition, the company has an ever-expanding ecosystem of systems, apps, and services. Its data marketplace enables customers to monetize their data. Providing high-quality, curated data sets and services to drive business outcomes is an important differentiator. As a result, the company benefits from network effects and switching costs (two essential economic moats).

Snowflake bills customers only for what they use. Therefore, most of the revenue is consumption-based. The company recognizes its revenue as customers consume compute, storage, and data transfer resources on the platform.

There are two key metrics to focus on with Snowflake:

Product revenue: The revenue recognized as consumption occurs.
RPO (Remaining Performance Obligation): Contracted future revenue not yet recognized (yet to be billed).

Customers can purchase the service on demand (similar to AWS) or via a pre-purchased capacity, allowing discounts. But ultimately, revenue is recognized only when consumption occurs. RPO is not a perfect metric since it depends on how far in advance customers want to plan their spending. A low or high commitment isn’t always indicative of the actual consumption.

Billings are critical for subscription businesses as a leading indicator of future growth. But for a consumption business like Snowflake? Not so much.

Let’s look at the most recent quarter.

1. Snowflake Q4 FY23

Key metrics:

RPO grew +38% Y/Y to $3.7 billion.
Net revenue retention rate of 158% (-19pp Y/Y, -7pp Q/Q).
Customers grew +31% Y/Y (or +7% Q/Q) to 7,828.
Customers with > $1 million TTM product revenue grew +79% to 330 (+15% Q/Q).

Income statement:

Here is the bird’s-eye view of the income statement.

❄️ Snowflake: The future of data

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